Changes will help taxpayers pay off back taxes, avoid liens

The Internal Revenue Service has announced a series of new policies and programs to help taxpayers pay back taxes and avoid tax liens. They include:

Significantly increasing the dollar threshold that generally triggers a lien, resulting in fewer tax liens being issued

Making it easier for taxpayers to obtain lien withdrawals after paying a tax bill

Withdrawing liens in most cases where a taxpayer enters into a Direct Debit Installment Agreement

Creating easier access to Installment Agreements for more small businesses

Expanding a streamlined Offer in Compromise program to cover more taxpayers

Tax Lien Thresholds, Withdrawals

The IRS will raise the threshold for unpaid taxes that generally triggers a tax lien, increasing it from $5,000 to $10,000. A federal tax lien gives the IRS a legal claim to a taxpayer's property for the amount of an unpaid tax debt. A lien can affect a taxpayer's credit rating, so it is critical to arrange the payment of taxes as quickly as possible.

The IRS will also modify procedures in order to make it easier for taxpayers to obtain lien withdrawals. Liens will now be completely withdrawn once full payment of taxes is made if the taxpayer requests it. To speed the withdrawal process, the IRS will also streamline its internal procedures to allow collection personnel to withdraw liens.

Direct Debit Installment Agreements and Liens

For taxpayers with unpaid assessments of $25,000 or less, the IRS will now allow lien withdrawals if a taxpayer enters into a Direct Debit Installment Agreement (DDIA), converts to a DDIA from a regular Installment Agreement, or is already paying via a DDIA and requests a withdrawal. (Liens will be withdrawn after a probationary period demonstrating that direct debit payments will be honored.)

Installment Agreements and Small Businesses

New policies will also make streamlined Installment Agreements available to businesses with $25,000 or less in unpaid taxes. (Currently, only small businesses with under $10,000 in liabilities can participate.) Although the IRS anticipates that most business entities using this option would be small businesses, eligibility is based on the amount owed, not the size of the business.

Streamlined Installment Agreements will be available for businesses that file either as an individual or as a business. Companies with an unpaid assessment balance greater than $25,000 would qualify for the streamlined Installment Agreement once they pay down the balance to $25,000 or less. Small businesses will need to enroll in a Direct Debit Installment Agreement to participate and will have 24 months to pay.

"Small businesses are an important part of the nation's economy, and the IRS should help them when we can," says IRS Commissioner Doug Shulman. "By expanding payment options, we can help small businesses pay their tax bill while freeing up cash flow to keep funding their operations."

Offers in Compromise

The IRS is also expanding a new streamlined Offer in Compromise (OIC) program to cover a larger group of struggling taxpayers.

An OIC is an agreement between a taxpayer and the IRS that settles the taxpayer's tax liabilities for less than the full amount owed. Generally, an offer will not be accepted if the IRS believes that the liability can be paid in full as a lump sum or through a payment agreement. The IRS looks at the taxpayer's income and assets to make a determination regarding the taxpayer's ability to pay.

The streamlined OIC will to allow taxpayers with annual incomes of up to $100,000 to participate. In addition, participants must have tax liability of less than $50,000, doubling the current limit of $25,000 or less.

For more information, go to www.irs.gov.